Saturday, June 03, 2006

Net Neutrality and the Telcos' Broken Promises

I'm in the midst of reading telecom analyst Bruce Kushnick's book The $200 Billion Broadband Scandal  and it is chock full of broken promises. Documented in exquisite detail, most useful are the insights into the telcos' various visions of the future. In each case, the telcos talked a great game, but didn't quite deliver what was promised. And, for each debacle, kindly recall that these are the same corporate behemoths that want to eradicate net neutrality and control the keys to the Internet.

Southwestern Bell 1986 Annual Report:

At the forefront of new technology is ISDN. Scheduled for commercial availability in 1988, ISDN will revolutionize day-to-day communications by allowing simultaneous transmission of voice, data and images over a single telephone line… With ISDN customers will have the potential to access videotex, telemetry, alarm services, sophisticated calling features, teleconferencing much more economically than they can today.

It is interesting to point out that ISDN, the posterchild for all failed digital deployments and a technology that could have been rolled out in the 1980's, waited until the 1990's before any actual implementation occurred — and it was never fully deployed.

Yes, and we're all intimately familiar with the success story that was ISDN.

A more recent chapter in the story begins with Clinton-Gore administration. Their vision to create a high-speed network throughout the country was the ostensible blueprint for the telcos.

...the Bell phone companies claimed that instead of the government taking the lead role, the Bell companies would step up to the plate to rewire America’s homes and offices, schools and libraries with a fiber optic broadband network. It would replace the aging, 100-year old copper-based network with a glass-based fiber optic wire that could handle America’s broadband needs.

...What was promised? By 2000, according to the Bell companies' annual reports, press releases and state filings, about 50 million households should have been rewired... Alongside the annual reports, the Bell companies also filed with the FCC to offer "video dialtone" services over fiber optic wire. Over 9,787,400 households in 43 cities were supposed to be upgraded between 1995 and 1997.

None of this was DSL. DSL goes over the old existing copper wiring and could not
deliver “broadband”, as defined by the Bell companies... By 2005, if the Bell companies (including Verizon/GTE) had actually delivered on their broadband promises, approximately 86 million households would have had fiber optic based services. These state commitments also would have rewired schools and libraries, hospitals and government offices. And in most states, the plan called for ALL customers to be rewired equally, whether they were in rural or urban areas, rich or poor.

And where would all of that funding come from? I think you've guessed the answer already.

The local phone companies are regulated by the state public utility commissions... Remember, in the 1990’s there was no competition of any consequence, and so the phone companies had a guaranteed income. It is still guaranteed in that if their profits fail to please, they ask for a price increase.

The plan was to simply get all 50 states to remove this old "rate of return" regulation with “deregulation”, meaning the removal of regulation. In this case, it was also called “price caps”, or “alternative regulations”, or “incentive regulations”, all of which would give the phone companies more money to pay for these upgrades... For example, “Calling Features”, such as “Call Waiting” or “Call Forwarding”, can cost customers $3-$5 a month, and yet cost less than one cent to offer.

Now that's value!

So, what was the net effect of the various "deregulation" efforts? Why don't tens of millions of homes have last-mile fiber?

While each state has different laws, nationwide, we estimate that the Bell companies overcharged over $205 billion from 1992-2004 for these networks, including various financial perks - and that figure is growing. On average, we estimate that it was over $2000 per household...

...what happened was that because of the state and federal deregulations that were primarily written for the companies’ fiber optic service promises, local service became the Bells’ private cash machine. By dumb luck, the timing for deregulation couldn’t have been better. There was a massive increase in telephone services being purchased fueled by the Internet’s growth starting in 1995...

...We argue that the company made false statements that changed the laws and that those laws should never have been allowed to stand based on what the company delivered. The monies should be refunded or given to others, such as the municipalities, to do the work.

And these are the jamokes that want to control the Internet? Go to Save the Internet and -- if you want a shocking education into the mindset of the telcos -- buy Bruce Kushnick's book.

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